90% of Indian startups fail due to lack of innovation: Study

In a recent entrepreneurial study “Entrepreneurial India” conducted by the IBM Institute for Business Value (IBV) in collaboration with Oxford Economics, the IT company has found that more than 76% of Indian executives pointed to India’s economic openness as a major business advantage.

60% of India’s skilled workforce and 57% of the executives said that India’s large domestic market also provides significant advantages.

The study interviews more than 1,300 Indian executives, including 600 startup entrepreneurs, 100 venture capitalists, 100 government leaders, 500 leaders of established companies and 22 educational institution leaders.

The study focuses on how more proactive engagement between startup and established organizations can help startups harden their business models, accelerate growth and leapfrog into the big leagues.

The study stated that market valuation of Indian startups has grown significantly over the past four years, with three times increase in startup investment recorded in 2015. 35% of startups are being set up in tier two and tier three cities, thereby promoting accelerated development and industrialization of rural and other less developed areas.

"We believe that startups need to focus on societal problems like healthcare, sanitation, education, transportation, alternate energy management and others, which would help deal with the issues that India and the world face. These require investments in deep technology and products which are built to scale globally" said Nipun Mehrotra, Chief Digital Officer, IBM India/South Asia.

Roadblocks

Despite India’s entrepreneurial strength, the startup economy still has not reached full maturity and more than 90% of startups fail within the first five years due to multiple reasons:

• Lack of innovation: 77% of venture capitalists surveyed believe that many Indian startups lack pioneering innovation based on new technologies or unique business models. Indian startups are prone to emulate already successful global ideas.

• Lack of skilled workforce: 70% of the venture capitalists believe that talent acquisition is one of the biggest challenges faced by Indian startups, and limited availability of necessary skills impedes growth. As per a study, 80% of engineering graduates in India are deemed unemployable and 48% of employers in India face difficulty in filling vacancies.

• Lack of funding: Indian startups face funding roadblocks both at entry and exit stages while successful global startup ecosystems are well supported by active investor communities. 65% of venture capitalists revealed that funding is one of the major challenges for these companies.

• Other roadblocks include inadequate formal mentoring, poor business ethics and lack of experienced leadership.